Once you take out your IRA, it is no longer a tax favored account. You then have a loss due to fraud. I am far from an expert in that area, but have read of people doing that. Which is why you should send your clients to a good tax lawyer. Also I think you must take out all IRA accounts, and if under 59 1/2 the 10% penalty applies.

There does seem to be a lot of confusion on this, but the latest instruction from IRS seems to say it is excludable. "If you made contributions to a governmental unemployment compensation program or to a governmental paid family leave program and you aren't itemizing deductions, reduce the amount you report on line 7 by those contributions. If you are itemizing deductions, see the instructions on Form 1099-G." The IRS is saying to reduce the amount of benefits by any payments you had to make to your state for PFL, or unemployment, so it follows that PFL and unemployment are excludable. Here is link:  https://www.irs.gov/forms-pubs/new-exclusion-of-up-to-10200-of-unemployment-compensation

Here is the work sheet from IRS:  Unemployment Compensation Exclusion Worksheet – Schedule 1, Line 8 If you are filing Form 1040 or 1040-SR, enter the total of lines 1 through 7 of Form 1040 or 1040-SR. If you are filing Form 1040-NR, enter the total of lines 1a, 1b, and lines 2 through 7.   Enter the amount from Schedule 1, lines 1 through 6. Don't include any amount of unemployment compensation from Schedule 1, line 7 on this line.   Use the line 8 instructions to determine the amount to include on Schedule 1, line 8, and enter here. Do not reduce this amount by the amount of unemployment compensation you may be able to exclude.   Add lines 1, 2, and 3.   If you are filing Form 1040 or 1040-SR, enter the amount from line 10c. If you are filing Form 1040-NR, enter the amount from line 10d.   Subtract line 5 from line 4. This is your modified adjusted gross income.   Is the amount on line 6 $150,000 or more?   a. [ ] Yes. Stop You can't exclude any of your employment compensation b. [ ] No. Go to line 8